US steel market awaiting Section 232 order vs Brazil, Argentina

The United States' steel industry is waiting to find out whether a tweet from the president always has the power to shape domestic trade policy.

President Donald Trump took to Twitter early on Monday December 2, noting that his administration would restore Section 232 tariffs against steel and aluminum shipments from Brazil and Argentina.

But nothing has happened since then, and exactly when any action might take place – or even whether it will at all – remained unclear as of Wednesday afternoon, sources in Washington with knowledge about trade issues told Fastmarkets.

Trump’s tweet did not specify the amount of the tariffs or an effective date for when US Customs and Border Protection (CBP) might begin collecting them.

The result is that the hard quotas to which Brazil and Argentina are subject remain in place and no additional tariff has been collected on top of them or in place of them as of Wednesday afternoon, trade experts said.

Where’s the executive order?
For the resumption of tariffs to become official, an executive order – a presidential proclamation or an official announcement from the Commerce Department or the Office of the US Trade Representative (USTR) – is required, sources in Washington told Fastmarkets.

“I think at this point it’s fair to say what’s in place remains in place. And until there is an executive order, I don’t think we can say anything else – it’s inappropriate to say anything else,” one knowledgeable Washington-based trade attorney said.

Basic details – the potential effective date of the tariffs, their amount and whether they would replace the quotas in place or come on top of them – remain unanswered, he said.

Other sources were less circumspect about whether the tariffs would come into force, indicating that it was only a question of when.

“The Department of Commerce or USTR will have some formal statement on the mechanics of implementing the tariffs on Brazil and Argentina – it’s only a matter of time,” Samir Kapadia, principal and chief operating officer of Washington-based lobbying and government relations firm Vogel Group, told Fastmarkets. “Those departments work for one person, the president of the United States.”

It’s also possible that Commerce could send a communication directly to CBP ordering the agency to begin collecting the tariffs in the absence a public announcement, Kapadia added, although he added that the prospect of that happening was remote.

Trump’s late-night foray on social media probably caught his own administration off guard, a second Washington-based trade attorney said. “Trump’s tweet took everyone by surprise – the White House staff, CBP, the USTR, etc,” this source said.

Commerce, the USTR, the CBP and the White House did not respond to Fastmarkets’ requests for comment.

Why it matters
Trump’s tweet threatening renewed tariffs has already had an impact on trade flows, regardless of whether the tariffs go into effect, market participants said.

“You think customers will buy Brazilian materials right now? I don’t think so,” one trader source said. “Customers try not to buy Brazilian materials as of today, which creates demand for domestic [product].”

Brazil and Argentina are both important steel suppliers to the US market.

Brazil supplies the US market with coated products, such as galvanized and Galvalume flat-rolled steel, with its primary export to the US being slab – a semi-finished product that is re-rolled into finished steel goods such as hot-rolled coil.

Argentina is a key supplier of the oil country tubular goods (OCTG) used to extract oil and gas from wells.

Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $27.54 per hundredweight ($550.80 per short ton) on December 3, down by 0.9% from $27.79 per cwt the previous day but roughly unchanged from $27.56 per cwt on November 26.

HRC prices have yet to show much reaction to Trump’s tweet, but the impact of the potential tariffs is enormous because Brazil is the second-largest steel supplier to the US.

The South American nation shipped 3.4 million tonnes of steel to the US in the first nine months of 2019, or 16.6% of the nearly 20.48 million tonnes of all US steel imports during the period, according to Census Bureau data.

Only Canada – the US’ northern neighbor and a country with which US supply chains are tightly linked – exceeds that level, at nearly 3.65 million tonnes.

The bulk of Brazil’s exports through September – 2.99 million tonnes, or 88% of the nation’s shipments to the US – were semi-finished goods, a product category that includes slab, the Census data show.

Brazil and Argentina in 2018 agreed to a hard quota on steel shipments to the US in exchange for an exemption from the 25% tariff applied to steel brought into the US from most other nations.

Argentina had shipped a comparatively modest 134,216 tonnes to the US during the January-September period, the vast majority of which – 110,071 tonnes, or 82% of its overall total – was comprised of OCTG material, according to the Census data.

Muyao Shen in New York contributed to this report.